NEPSE Index Lost Big This Week, Has It Shown Signs of Reversal Yet?

Fri, Jan 28, 2022 3:27 PM on Stock Market, Weekly Analysis,

-ShareSansar

Part 1: Rundown and Technical Analysis

The NEPSE index gained for a day and lost for four days in the five trading days this week. The market is closed on Fridays and Saturdays every week.

The NEPSE index closed at 2,779.98 this week after a loss of 151.36 points (5.16%). The index had closed at 2,931.34 last week with a gain of 2.58% from the week before that.

This week, the index went as high as 2,961.93 and as low as 2,761.28, hence witnessing volatility of 200.65 points. In the previous week, the index had seen a volatility of 107.93 points.

Analysis of Trend

The NEPSE index is up more than 13% compared to the same date last year. However, it is down around 13% from the all-time high of 3,198.60 created around five months ago. Nonetheless, the index has bounced back around 22% after reaching the nearest intraday low of 2,259.63 on December 13 (the most recent significant pivot low).

Candlestick Charting

On the weekly candlestick chart, this week's market movement has formed an extended red candle with negligible wicks on either side. Last week, the weekly chart had formed a small green candle with a noticeable upper wick and no lower wick.

The first trading day (Sunday) this week formed an indecisive red candle, a loss of 0.37% on the index. The index then lost heavily in the next three trading days. It was only on the last trading day on Thursday that the index gained, but still an unimpressive 3.33 points.

Last week's summary had analyzed that whether the highest point of 2,981.35 will end up being a pivot point would be determined by next week's index movement. A week later now, the assumption was true as the index is 6% below the pivot point.

Momentum Indicators

The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or index. Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.

The RSI reading on the daily timeframe is 52.21. The RSI chart this week was downwards sloping. Meanwhile, the RSI reading on the weekly chart is 52.63.

On the other side of things, the MACD line is positive, i.e. above zero in the daily timeframe, with the MACD reading at 60.22. However, it sloped downwards this week. The MACD line is below the signal line, indicating a general pessimism in the market.

Volume

A chart reader can deduce investor sentiment with volume. Essentially, trading volume can legitimize a security's price action, which can then aid an investor in their decision to either buy or sell that security.

During market falls, the volume is dry and during bullish days, there is a general increase in volume. Volume contracted throughout the trading sessions this week.

Support/ Resistance and Price Action

First and foremost, there is no rigid rule to deduce support and resistance levels from a stock/ index chart. Technical analysis is more an art rather than hard science since it is an attempt to deduce market psychology after all. As is the case with human behavior, markets are largely unpredictable, subject to whims and instance changes in sentiment. The best a chart reader can do is deduce investing strategies using what has worked historically, and what gives a competitive edge even in securities other than those present in the sample data.

The resistance level is simply the price above which the index has had trouble moving up. Thus, the previous high (or a series of highs if they are on the same level) can be used as resistance. Meanwhile, if the stock or index chart has gone below the previous low, it can also be inferred as a resistance level, since the previous support level acts as resistance if the price/ index has broken below it.

On the other hand, the support level is simply the price below which the index has had trouble moving down. Thus, the previous low (or a series of low if they are on the same level) can be used as support. Meanwhile, if the stock or index chart has gone up the previous high, it can also be inferred as a support level, since the previous resistance level acts as support if the price/ index has broken above it.

On the previous weekly summary, it was mentioned that chart readers may be expecting a correction since the index has witnessed a steep, significant gain from the most-recent pivot low. The case has now been proved true, and the index has been falling ever since.

The 50-day exponential moving average (50EMA) has historically acted as a support level for the NEPSE index. Considering that validity, the NEPSE index is approaching the support zone and may bounce back from there.

On the chart, the 2,675-2,685 zone may also act as a good demand zone, because of its apparent historical role as support and resistance.

If the index does bounce back, the most recent high itself may serve as the nearest resistance.

From a price-action perspective, stocks and indices in Nepal have been observed (by the author, may contain potential bias) to rise around 30% in an upwards swing and lose 10% in the correction thereafter. Thus, a chart reader may expect the index to lose further for a healthier upwards swing afterward.

However, if the index does bounce back from the next week itself, which it sure can, the upswing may feel premature for a technical analyst.

Part 2: Insight into Important Data

More than 5.79 crores unit shares worth Rs 28.97 Arba have been traded through 3.85 lakh transactions this week. The current market capitalization of NEPSE stands at Rs. 3,928,634.22 million.

NEPSE index and Sub-indices performance: (Increment based on previous week's close)

The NEPSE index declined by 5.16% this week. All the sectors lost this week.

Stock with highest monthly Beta (Microfinance, Non-life insurance, Hydropower)

Madhya Bhotekoshi Jalavidyut Company Limited (MBJC) has the highest monthly Beta value of 1.97 followed by Himalaya Urja Bikas Company Limited (HURJA) and Corporate Development Bank Limited (CORBL) with 0.91 and 0.67 beta values respectively.